News & Insights


February 24, 2020

Health Headlines – February 24, 2020

Hospitals Ask Appeals Court to Affirm Their Victory in Off-Campus Provider-Based Department Rate Cut Saga – On Thursday, February 20, 2020, hospitals represented by King & Spalding that operate excepted off-campus provided-based outpatient departments (PBDs) filed their brief in federal appeals court to preserve the victory they achieved in federal district court last year.  Last September, the district court vacated CMS’s 2019 payment rule that reduced payment for evaluation and management (E/M) services for excepted PBDs, finding that it violated the statutory requirement that payment adjustments be conducted in a budget-neutral manner.  These hospitals are now asking the federal appeals court to affirm the district court’s decision in response to the government’s appeal.  With the hospitals’ brief now filed, oral arguments are set for April 17, 2020.


Section 603 of the Bipartisan Budget Act of 2015 (BBA 2015) attempted to equalize payment rates for outpatient services performed at newly-built PBDs, by requiring those services to be paid on the physician fee schedule regardless of whether they were provided in a physician’s office or in a hospital department that is located away from or “off” the main campus of the hospital.  Off-campus PBDs that existed prior to the effective date of BBA 2015, November 2, 2015, however, were specifically “excepted,” and continued to be paid at the higher Outpatient Prospective Payment System (OPPS) rate.  Despite Congress’ decision to protect payment rates for grandfathered PBDs, CMS promulgated a rule effective January 1, 2019, that declared that all off-campus PBDs, even those excepted under BBA 2015, would be paid the same rate as physicians’ offices for E/M services.

Legal Proceedings

The hospitals filed suit in federal district court alleging that CMS’s policy was unlawful, arguing that Congress was clear when it excepted off-campus PBDs and any attempt by CMS to circumvent Congress’s mandate expressed in Section 603 is beyond the legal authority of the agency.  In addition, the hospitals argued that even if CMS had the authority to cut E/M rates, such an adjustment must be made in a budget-neutral manner, which CMS failed to do.  In September 2019, the court agreed with the hospitals and vacated the payment rule, deciding narrowly that CMS failed to adhere to the budget-neutrality requirement.  CMS appealed the court’s decision.  

Now, hospitals are asking a federal appeals court to stand by the lower court’s decision.  Specifically, the hospitals argue that the lower court got it right: payment cuts like the one here must be made in a budget-neutral manner.  The hospitals also argue that CMS cannot circumvent the specific will of Congress in Section 603 of BBA 2015, which clearly excepted off-campus PBDs and allowed them to be paid at the full OPPS rate.  Both the government and the hospitals have filed their briefs, and oral arguments are set for April 17, 2020.  

Related Events

While CMS is asking the appeals court to reverse the lower court, it is also complying with the vacatur of its 2019 policy by reprocessing the affected 2019 claims to ensure hospitals receive the difference between the full OPPS rate and the reduced rate they received under the lower rate.  And, it appears to be déjà vu all over again for 2020, as CMS has implemented another rate cut payment for these services in 2020, contending that the district court’s vacatur only applied to 2019 claims.  The 2020 rate cut is based on the same flawed legal justification as the 2019 decision the court invalidated.  King & Spalding’s plaintiffs have brought another challenge to that rate determination for the 2020 payment rule. 

The hospitals’ brief is available here.

Reporter, Michael L. LaBattaglia, Washington, D.C., +1 202 626 5579,

CMS Issues Proposed Rule to Extend Comprehensive Care for Joint Replacement Payment Model and Include Outpatient Procedures – On February 20, 2020, CMS released a proposed rule that would extend the bundled-payment model for joint replacement surgery for an additional three years and broaden its scope to include outpatient procedures (the Proposed Rule).  Originally scheduled to expire at the end of 2020, the Proposed Rule would allow CMS to continue the Comprehensive Care for Joint Replacement (CJR) Model from 2021 through 2023.  The Proposed Rule, which was published today, February 24, 2020, in the Federal Register, seeks to utilize the extension to evaluate the impact of the proposed changes to the payment model.  Comments are due by 5:00 p.m. EST on April 24, 2020.

Begun in April 2016, the CJR Model is an episode-based bundled payment initiative for hip and knee replacements—the most common inpatient services for Medicare beneficiaries. As previously reported , under the current CJR Model, the episode begins with an inpatient hospitalization for a knee or hip replacement and runs through 90-days post-discharge.  Participating hospitals are paid one retroactive payment for all services incurred in that time frame.  To reconcile the retroactive bundled payment with the total cost of the services, the CJR Model relies upon a complex methodology of quality-adjusted target prices.  The total cost of the episode is compared to the relevant quality-adjusted target price.  As a result of this comparison, the hospital may either owe a repayment to CMS or receive a shared savings, or reconciliation, payment.  Through gainsharing payments, participating hospitals can contract with collaborating physicians and post-acute care providers to share these reconciliation payments. 

The Proposed Rule proposes several substantive changes to the CJR Model.  Notably, the Proposed Rule proposes to add outpatient total knee and total hip replacements to the definition of “episode.”  According to the CMS Fact Sheet, the Proposed Rule also sets forth changes to the target price calculation, including: modifying the basis for the target price from three years of claims data to the most recent one year of claims data; removing the national update factor and twice yearly update to the target prices; removing anchor factors and weights; incorporating additional risk adjustment to the target pricing; and modifying the high episode spending cap calculation methodology.  In addition, changes to the reconciliation process are proposed, including: modifying the high episode spending cap calculation methodology used at reconciliation; adding a retrospective trend adjustment factor; and modifying the quality discount factors applicable at reconciliation for participating hospitals with excellent and good quality scores to better recognize high quality care.

CMS has not proposed to expand the geographic scope of the CJR Model.  Since the CJR Model is inherently a pilot program, however, the obvious implication is that it may be expanded, potentially nationally, if CMS considers the results of the pilot a success.  All hospitals, therefore, have an interest in monitoring the CJR Model as it develops. 

Reporter, Rebecca Gittelson, Atlanta, +1 404 572 4679,


HHS Issues Final Report of Recommendations to Reduce Regulatory and Administrative Burdens Relating to Health Information Technology and Electronic Health Records – On February 21, 2020, HHS released its final report with its comprehensive strategic plan for reducing regulatory and administrative burdens associated with the use of health information technology (IT) and electronic health records (EHRs).  The report targets technology burdens HHS can address through the rulemaking process and provides recommendations for four main areas: clinical documentation, health IT usability, federal EHR and health IT reporting requirements and public health reporting.  According to the HHS press release announcing the publication of the report, the report “describes examples of [EHR] related burden, as well as strategies and recommendations that HHS and other stakeholders can use to help clinicians focus their attention on patients rather than paperwork, when they use [health IT].”  Congress mandated the issuance of the report in December 2016 as part of the 21st Century Cures Act. 

Webinar: HIPAA Compliant – and Revenue Generating – Responses to Subpoenas and Medical Records Requests After Ciox Health– On Tuesday, February 25, 2020 at 1:30 p.m. EST, a panel of attorneys from King & Spalding LLP will host a webinar to discuss the issues raised by the production of medical records and other documents containing protected health information following the U.S. District Court for the District of Columbia’s decision in, Ciox Health, LLC v. Azar, et al., No. 18-cv-0040 (D.D.C. January 23, 2020).  The panel will describe the various types of federal and state requests and demands for medical records that covered entities and business associates may receive, how to determine whether the law enforcement exception applies, how to deal with attorneys and others to ensure a request is valid while avoiding unnecessary burden and expense, and how to comply.

Participants will also receive:

  • Checklists;
  • Step-by-step response processes;
  • Examples of how state laws may interact with these federal requirements; and
  • Recommendations for ensuring that policies and procedures adequately describe the requirements and ensure compliance

There is no charge to attend the webinar.  For more information and to register, please click here.

King & Spalding 29th Annual Health Law & Policy Forum – On March 16, 2020, King & Spalding LLP will host its annual forum in Atlanta, GA, focusing on the foremost legal and political developments impacting the healthcare industry.  This year’s Keynote Speaker is George F. Will, America’s foremost political columnist.  He will speak on healthcare’s role in the 2020 political campaign.  Other Forum highlights include:

  • Leading practitioners providing policy and regulatory enforcement updates, and other industry developments;
  • Special considerations healthcare providers face in pandemics; and
  • Developments in telehealth.

Registration closes on March 2, 2020, and capacity is limited.  For more information and to register, please click here.